European Central Bank President Mario Draghi told The Wall Street Journal last month that the "European social model has already gone." If his fellow Europeans have read Friedrich Hayek, they would also understand why.

Friedrich August Hayek, who passed away 20 years ago this week, was one of the foremost social scientists of the last century. A Nobel laureate in economics, Hayek is often associated with his critique of socialist systems. There is, in society, a "knowledge problem": Economic life requires the coordination of individual planning. The relevant knowledge for economic planning is dispersed rather than concentrated in society. If this makes coordination challenging enough in a market system, it also makes coordination a virtual impossibility under central planning: The planner can never secure and process all the necessary information to provide detailed guidance to any given development in society.

Even though this argument was originally deployed against hard-core socialism, it works pretty well against the soft-core version widely adopted by European democracies. Centralized welfare systems are necessarily run by a bureaucratic leadership. The supposed technical superiority of such an organization is simply not enough to master the nuances of a complex society....Hayek was not deaf to the needs of the poor or the sick, and he even advocated some form of safety net. But he was well aware that Western democracies were at risk of developing, as he wrote in 1960, a "household state in which a paternalistic power controls most of the income of the community and allocates it to individuals in the forms and quantities which it thinks they need or deserve." Regardless of the intentions of its makers, such a system was bound to produce inefficiency and waste.

These inefficiencies and this waste, of course, become rents for those that live off them and return the favor with their political support.

States that control most of the income of the community and allocate it according to the wishes of their bureaucracy are now on the brink of bankruptcy. ......The European social model that trade unions and political parties still defend with such passion was ill-conceived from the start. A market system cannot work properly if a society aims to dole out rewards and punishments like a teacher in a classroom. Market institutions are anonymous and blind. Imposing upon them any preordained scheme of merit and reward will just make coordination between individuals—and, thus, wealth creation—more difficult.

The European social model has now reached its inevitable breaking point. Friedrich Hayek still offers the most compelling explanation of why it was bound to do so.

Being outside the euro helped, because the krona fell before climbing back. But the main answer is the prudent pro-market policies of Fredrik Reinfeldt’s four-party centre-right coalition, which came to power in October 2006.

Tight fiscal policy has pushed the public sector’s share of GDP down

Without dumping the generous Swedish social model, the government has tweaked it in the direction of lower taxes and smaller welfare benefits. Mr Borg calls this “reinforcing the work ethic”. Mr Reinfeldt talks simply of making work pay.

Some 40 years after becoming the only continental European country to switch its motoring from left to right, Sweden is making a similar political shift. By 2014 Mr Reinfeldt will have been in power for eight years. Given the economy’s strength, few would bet against his winning again. To many on Europe’s left, Social Democratic Sweden was once a statist paradise. Now it is the right that looks north for inspiration.

In Sweden we have already solved this problem; we discarded the social model and replaced it with a free-market system....When looking at Sweden today and comparing it to the rest of the EU, one is struck by its relatively free-market approach. It ranks 21st and 24th, respectively, in the latest Heritage Foundation and Fraser Institute indexes of economic freedom....Health care has largely been opened to private alternatives, thanks to the doctors’ and nurses’ labor unions. In fact, one of Stockholm’s largest emergency hospitals, St. Göran’s, is a private company listed on the stock exchange.

Sweden has a comparatively low corporate tax rate of 28 percent. The process for opening a business is relatively straightforward, ranging from one week to a couple of months. Sweden presents few barriers to foreign investment, maintaining restrictions only in some limited national-security–related sectors. Most commercial banks in Sweden are privately owned and operated. Banks are allowed to offer a full range of services, and foreign banks have access to the sector. Few working days are lost to strikes. It is easy to close down factories and move investments abroad. There is no legal minimum wage. Unlike in other European countries, retailers do not have their hours regulated. In 2005 the government abolished inheritance and gift taxes. The Swedish Competition Authority has forcefully reacted against local politicians who restrict full competition.

So you're sayin that Sweden is a success because they have embraced the Free maket system?UNLIKE THE MARKETS OF GERMANY AND BRITAIN???

Dude you really gotta untangle yourself from your rhetoric sometimes .... You can't get anymore freemarket than the Merkel Government in Germany ... and Britain is under the Conservative party which LOVES the free market

So you're sayin that Sweden is a success because they have embraced the Free maket system?UNLIKE THE MARKETS OF GERMANY AND BRITAIN???

Dude you really gotta untangle yourself from your rhetoric sometimes .... You can't get anymore freemarket than the Merkel Government in Germany ... and Britain is under the Conservative party which LOVES the free market

You ought to do specific research before spouting off. You brought up Sweden and I responded. So now you bring up other countries. If you want to make specific points, bring specific facts. Already shown you spew garbage and have no interest in trying to back anything up. Not wasting time making you look like more of a fool as I just did.

Socal, I hold my nose at mention of the Fraser Institute. You conveniently left out some important details of the history of Sweden and how it went way too far overboard with its social system, which had enough holes to drive trucks through.

Now they are veering to the other extreme (though I hope NOT) according to your happy posts.

While it would be great to discuss this, you're a person who can only see in absolute black and white, which makes it pointless.

...as for Sweden, let's see what happens when 8 years of swinging Right ends, and hopefully they won't be in the same mess the US was in by the middle of 2007.

meninlove said... While it would be great to discuss this, you're a person who can only see in absolute black and white, which makes it pointless.

Total nonsense. I'm quite moderate on a number of issues in the US. I even agree with a few of the provisions of Obamacare, which I think should and will be reinstated should the entire law be thrown out. The difference between you and me is while I am moderate on a number of issues and will modify my positions if enough evidence convinces me to do so, I don't equivocate the way you do, constantly hiding behind ambiguous insinuations. I am much more forthright, to the point of bluntness, which from your perspective, seems to be black and white.

conscienti1984 saidSo it has FINALLY been proven: all forms of socialism and welfare have completely failed! Yuppee!

In spite of his blustering about how moderate he is (Bill's splitting his sides laughing over that remembering his post history) I doubt Socal gets the point of what you said.

I didn't comment on his statement because I thought it was sarcasm/absurdity. Hayek as I excerpted in the OP called for a safety net, similar to my belief. There is a role for welfare in that context.

Regarding post history and being moderate, there is something I will point out to you and Bill. The intensity of one's opposition to a particular ideology or policy does not imply a particular distance from that. To be specific, being vehemently opposed to the policies of the US Administration, and expressing opposition in the strongest terms does not imply being on the far right. You can be center-right, for example, and vehemently oppose policies of the left.

conscienti1984 saidSo it has FINALLY been proven: all forms of socialism and welfare have completely failed! Yuppee!

In spite of his blustering about how moderate he is (Bill's splitting his sides laughing over that remembering his post history) I doubt Socal gets the point of what you said.

I didn't comment on his statement because I thought it was sarcasm/absurdity. Hayek as I excerpted in the OP called for a safety net, similar to my belief. There is a role for welfare in that context.

Regarding post history and being moderate, there is something I will point out to you and Bill. The intensity of one's opposition to a particular ideology or policy does not imply a particular distance from that. To be specific, being vehemently opposed to the policies of the US Administration, and expressing opposition in the strongest terms does not imply being on the far right. You can be center-right, for example, and vehemently oppose policies of the left.

It was sarcastic for a reason. I'm not new to RJ, and I know what these types of posts turn into.

Hayek was an academic and a credible one at that. His ideas and views should be valued by those interested in economics and social policy despite one’s worldview. Ideas should be debated, dissected, critiqued and reformed/supported especially the ideas of someone like Hayek. But this fruitful process almost never takes place on RJ.

Social, I am not a mind reader, but based on your RJ history, you did not post this for intellectual reasons or to spawn a productive academic debate. This is RJ, and you know what a post like this will turn into ESPECIALLY since someone like you posted it. You are not a moderate on this site--moderation or compromise rarely makes it into your posts. You are highly partisan. Your posts are generally not academic in nature. You mudsling with liberals you oppose. And you often post overly simplistic black and white sentiments while using “passion” as an excuse. But from past experience you are not like this with one-on-one conversations.

So, I'm sorry if I am skeptical of your motives. My response would have been different if riddler or mock posted this.

So, I'm sorry if I am skeptical of your motives. My response would have been different if riddler or mock posted this.

That makes one of us. Frankly, anyone who is reasonable or moderate has long ago left the right-wing in this country as it careens into self-destruction.

That's not true. Although I agree with more of your views than social, you can be equally bombastic and partisan. I'd be nice if we could have descent political conversations on RJ and try to find some common ground or at least understand and respect each other more.

conscienti1984 saidIt was sarcastic for a reason. I'm not new to RJ, and I know what these types of posts turn into.

Hayek was an academic and a credible one at that. His ideas and views should be valued by those interested in economics and social policy despite one’s worldview. Ideas should be debated, dissected, critiqued and reformed/supported especially the ideas of someone like Hayek. But this fruitful process almost never takes place on RJ.

Social, I am not a mind reader, but based on your RJ history, you did not post this for intellectual reasons or to spawn a productive academic debate. This is RJ, and you know what a post like this will turn into ESPECIALLY since someone like you posted it. You are not a moderate on this site--moderation or compromise rarely makes it into your posts. You are highly partisan. Your posts are generally not academic in nature. You mudsling with liberals you oppose. And you often post overly simplistic black and white sentiments while using “passion” as an excuse. But from past experience you are not like this with one-on-one conversations.

So, I'm sorry if I am skeptical of your motives. My response would have been different if riddler or mock posted this.

riddler and I both post generally articles or excerpts from mainstream publications. Mine are mostly from WSJ, in this case with a contribution from a prominent leader of an Italian think tank. In this thread also, when a liberal made a snide comment about Sweden without backing it up, I followed up with excerpts from The Economist and another publication, disputing his point, and I did it without any mud-slinging. I let the facts speak for themselves. So your comment about not being academic in nature and mudslinging is factually incorrect. Sticking to this thread, I only resorted to the mud-slinging when this same guy, instead of responding to my response, tried to change the subject, again snide and again without any factual basis. So I reject your observation and question your motives.

So, I'm sorry if I am skeptical of your motives. My response would have been different if riddler or mock posted this.

That makes one of us. Frankly, anyone who is reasonable or moderate has long ago left the right-wing in this country as it careens into self-destruction.

That's not true. Although I agree with more of your views than social, you can be equally bombastic and partisan. I'd be nice if we could have descent political conversations on RJ and try to find some common ground or at least understand and respect each other more.

This is what is wrong with this country.

Actually, it is true and provable by repeated studies demonstrating how far to the right the Republican Party has gone to where policies that made Barry Goldwater be considered a lunatic right-winger are now considered overly moderate within today's GOP.

There's another book, The New Road to Serfdom: A Letter of Warning to America by Daniel Hannan, a conservative British MEP. I haven't read it yet, going on my list. From the review, it applies Hayek's positions to contemporary politics.http://www.amazon.com/The-New-Road-Serfdom-Warning/dp/0061956945/ref=sr_1_3?s=books&ie=UTF8&qid=1332771204&sr=1-3From the review on Amazon: A thoughtful and articulate spokesman for conservative ideas, Daniel Hannan, a conservative British MEP, is better versed in America’s traditions and founding documents than are many Americans. In The New Road to Serfdom, Hannan argues forcefully and passionately that Americans must not allow Barack Obama to take us down the road to European Union–style social democracy. He pleads with Americans not to abandon the founding principles that have made our country a beacon of liberty for the rest of the world. In this updated edition, Hannan explores Barack Obama’s attitude toward Britain and offers an insightful analysis of what it reveals about Obama’s perception of our country, our Constitution, and our exceptionalism.

We are discussing an OP Ed piece by the head if the central Bank of the EU A bank who has the major RESPONSIBILITY of keeping the economic stability of the EU and the Bank that ALLOWED all of the ridiculous monopoly money borrowing to go on unattended ..... Ireland? .... Greece......?

DO YOU .... Think for ONE MINUTE this man is NOT going to blame social programs INSTEAD OF HIS own institution??????

Oh So..... You also didn't mention that Herr Haydek has been Dead for two decades So let's see what's happened in the EU over the last 20 years........?

Germany has been reunited ... Jah?And the euro has been instituted and spread throughout Europe including former Soviet States or satellites

.... And we have had a meltdown of capitalism in the meantime through the enmeshing of banking and financial institutions

I thiink bringing up the economic equivalent of Piltown Man seems a wee bit self serving for the head of the EU bank that holds major responsibility of what went down in Europe since 08 ....

As far as Swedens turn around goes be careful about what you state because it can turn arond and bite you in the ass

Sweden did have a crisis in 92 where real estate prices and the economy took a hit but .......

Like us bailed out the banks ....... BUT unlike us took the profits from the stockholders until they regained most of the money back and kept the influence in the banking system so it wouldn't happen again